We
commend the Energy and Commerce Committee Chairman Fred Upton (R-MI) and the Communications
and Technology Subcommittee Chairman Greg Walden (R-OR) for their hard work to
make the FCC more transparent and to enhance public safety and communication
networks throughout the country.

Wednesday, September 28, 2016

In February 2016,
the Federal Communications Commission (FCC) adopted a Notice of Proposed
Rulemaking
(NPRM) purporting to “unlock the box,” mandating requirements for video
navigation devices. Including the time the FCC spent writing the NPRM, this
proceeding has lasted roughly ten months. After heavy criticism from inside and
outside the FCC, the Commission is now apparently proposing an entirely
new set of regulations which would require pay-TV providers to deliver video
service through an application (as opposed to a set-top box) that can be used
on “widely deployed platforms.” The draft Report and Order (unseen by the
public) is scheduled to be voted on during an Open Meeting on September 29,
2016. If the
technological innovation of the video marketplace has changed so much in the
last ten months that the Commission has revised its proposal, what makes the
FCC so sure that “apps” will be the technology consumers want in the future?
And shouldn’t the FCC let the public comment on such a dramatic revision before
the Commission casts its votes?

In FSF’s recent comments to the
FCC regarding the status of competition in the video market, FSF scholars
explained that consumers have more choices for video access than ever before.
Our comments also discussed how the FCC’s original and new proposals would
violate copyright terms, disincentivizing creators from producing additional
content. (In addition to our comments, see my August 2016 blog and Senior Fellow
Seth Cooper’s February 2016 blog for more on the
copyright violations that the FCC’s proposal would enable.) Regardless of these
very important issues, the FCC has misunderstood what should be a pretty simple
concept: consumers like having choices in the video market. The fundamental mistake
the FCC made in its original proposal was not the type of technological mandate;
it was the mandate itself!

The video market
has experienced tremendous innovation in the last five to ten years as online
video distributors (Netflix, Amazon, Hulu) have emerged to become competitors
with facilities-based pay-TV providers (Comcast, Verizon, Time Warner Cable).
In fact, Netflix, Amazon, and Hulu combined have more than twice as many
subscribers as all cable providers
combined. The video market has been transitioning from set-top boxes to
applications, so this mandate simply creates unnecessary uncertainty and
removes the traditional options for consumers who are less likely to adopt to
the latest market trends. (See here, here, and here for examples of
the innovative transition that is occurring in the video market.)

If adopted, the
mandate proposed by the FCC will raise costs for pay-TV providers. In fact, the
FCC’s fact sheet acknowledges this
because the proposal exempts providers with fewer than 400,000 subscribers in
an attempt to “limit burdens on smaller providers.” Ultimately, consumers will
end up paying for this technological mandate with an increase in the price of
their pay-TV service.

Consumers likely will
be able to see the increase in their provider’s costs on their monthly bills, but
there will also be hidden costs. The FCC’s mandate could disable pay-TV
providers from differentiating their application’s interface and usability.
This would discourage providers from developing new ways to deliver their
service. Such a requirement could force video distribution, which recently has
been at the forefront of innovation, onto the back burner of technological
development. Consumers would enjoy less innovation in the video market than
they otherwise would, absent the FCC’s proposed regulations.

On September 16,
2016, Jason Furman, Chairman of the Council of Economic Advisers for President
Obama, praised FCC
Chairman Tom Wheeler
for his efforts to “improve the proposal.” But neither President Obama and his closest
advisers nor Chairman Wheeler and his FCC colleagues are knowledgeable enough
to predict the future and mandate efficient outcomes in the video marketplace. Consumers,
collectively, are the only group of people who can dictate what technologies
provide value and which do not. While applications (as opposed to set-top
boxes) might be closer to where the video market is moving right now,
technology changes so rapidly that it may be only be a matter of weeks or
months before the mandated technology is out-of-date.

Over the period of
ten months, the FCC changed its mind about what technology to mandate for
pay-TV providers and consumers. Who is to say that the FCC will not mandate a
new technology a year or so down the road? The FCC should shut down this
proceeding and allow consumers in the competitive marketplace to choose the
technologies and platforms they prefer when accessing video content. If not, at
the very least, the FCC should issue a new NPRM, instead of a Report and Order,
so the public can comment on its quick switch from set-top boxes to
applications.

Monday, September 26, 2016

The Department of Commerce just issued an updated report that demonstrates the sizable contribution that Intellectual Property-intensive industries to our nation's economy.Here's the headline message from DOC's news release:

While IP is used in virtually every segment of the U.S. economy, the report identifies 81 industries that use patent, copyright, or trademark protections most extensively. These "IP-intensive industries" are found to be the source - directly or indirectly - of 45 million jobs, roughly 30 percent of all the jobs in this country. Some of the most IP-intensive industries include: software publishers, sound recording industries, audio and video equipment manufacturing, cable and other subscription programming, performing arts companies, and radio and television broadcasting."

Whenever you run across proposals, say, for example, the FCC's current proposal to mandate a new open standard video navigation device with a compulsory license, that would threaten IP rights, please keep in mind the economic contribution of the IP-intensive market segments.

As I said in
my last
post in this series, some
things are harder to think through than others. But, like the last post, this
one too is rather easy.

I begin again
with the letter Public Knowledge President Gene
Kimmelman sent on September 21 to congressional leaders in which he said this:
“Contrary to claims of Hollywood and cable monopolies, the FCC’s apps proposal
will promote consumer choice while protecting copyright.”

In my last
post, I explained why, as a
matter of first principle, Mr. Kimmelman’s claim that the FCC’s navigation
proposal will protect copyright is wrong.

But there is another matter of first principle at stake
as well, this one involving sound communications policy. Notice that Mr.
Kimmelman refers, as he and other Public Knowledge staff almost invariably do,
to “cable monopolies.” There must be a locked “macro” on the PK word processors
that will not allow anyone to type “cable” without “monopolies” attached.
Please: #UnlocktheWordProcessors.

I could make light of this monotonous coupling by saying
it is “so 90ish,” as in the 1990s. But since, for the last several years, the
FCC appears to be taking so many of its cues from Public Knowledge, this is
serious business.

To the extent they ever did, cable operators no longer
have a monopoly in the distribution of video programming, unless Mr. Kimmelman
means to argue that what he calls “cable” constitutes a distinct video
distribution product market because “cable” uses a distinct “cable” technology.
If he means to argue this, it is an untenable position because, in today’s
video marketplace, video distributors compete vigorously against one another
employing various technological platforms.

For authority that there no longer are any “cable monopolies”
I refer Mr. Kimmelman to – yep! – the FCC. In June 2015, in what the agency
calls the Effective Competition order,
the Commission finally adopted a rule presuming that local video markets, on a
nationwide basis, are subject to “effective competition.” In announcing
adoption of the competitive presumption, the Commission recited the dramatic
changes that have occurred in the video marketplace since the FCC started
regulating basic cable rates after passage of the Cable Act of 1992.

As the agency explained in a brief filed in the D.C.
Circuit appeals court in February 2016, two decades ago, in most locations, a
single cable operator often was the only purveyor of multichannel video
service. But now, citing all the familiar market share figures, the Commission
conceded – indeed, touted – in its appellate brief that there has been a
“transformation” of the multichannel video marketplace, acknowledging that
“consumers have alternatives to cable,” and “cable’s market share has sharply declined.”

If ever there were, there no longer is such a thing as a
“cable monopoly,” and the Commission has acknowledged this obvious truth, even
if Mr. Kimmelman won’t.

But the Commission has a very bad case of cognitive
dissonance when it comes to its video device navigation proposal. In a
competitive market like the video distribution marketplace – that is, one in
which the market participants are presumed by the Commission to lack market
power – there is no sound basis, as a matter of first principle, for proposing
to extend the government’s regulatory reach, rather than retract it. This is
especially so, as here, where the government’s proposed new regulation ultimately
involves a government-designed technological mandate in a fast-changing,
dynamic technological area.

The set-top devices, or now navigation apps, that the
government proposes to design, and upon which it seeks to impose a standardized
compulsory license with a nondiscrimination mandate, are merely complements to
the overall video distribution services offered by various video providers.
And, as you might expect in a market which the FCC has declared presumptively
competitive, the video distributors, in fact, do compete in the provision of
navigation devices and app offerings in order to further differentiate their
services. Of course, this differentiation in response to changing consumer
demand is an important reason there has been considerable innovation and
investment with respect to video devices and apps in the past few years.

The Commission appears blind to the adverse impact on
innovation and investment by video distributors that its proposal is likely to
cause. Perhaps it doesn’t care.

In any event, even if Mr. Kimmelman and his Public
Knowledge colleagues continue to refer to “cable monopolies,” the Commission
should know better. As a last resort, it should read its own appellate brief in
defense of its Effective Competition
order.

On September 20,
2016, FCC Commissioner Michael O’Rielly spoke at the International
Bar Association Conference, where he talked about the FCC’s investigation
of zero-rated services. Commissioner O’Rielly said that the ten-month
investigation has suppressed the implementation of new pro-consumer offerings: “I
have had conversations with industry participants that withheld new offerings
because it isn’t worth being caught up in an FCC investigation. One company
told me that their engineers came up with some new interesting ideas that were
shot down almost immediately by their general counsel because of this rule. It
is never a good thing when lawyers are dictating technology winners and losers,
no offense to the lawyers in the room.”

Consumers benefit
from more choices offered by their Internet service providers, but the FCC’s
general conduct standard has discouraged ISPs from developing new services. It
is time for the Commission to end its investigation of zero-rated services.

Saturday, September 24, 2016

Some things are harder to think through than others. But
this one is rather easy.

As reported in the September 23
edition of Communications Daily [subscription required], on September 21, Public
Knowledge President Gene Kimmelman sent a letter
to congressional leaders in which he said this: “Contrary to claims of
Hollywood and cable monopolies, the FCC’s apps proposal will promote consumer
choice while protecting copyright.”

As I have explained at length elsewhere, despite all the protestations to
the contrary, the FCC’s proposal, including the latest iteration as best conjectured
through selective blog and “fact sheet” snippets thus far publicly disclosed,
almost certainly will threaten the integrity of copyrights and the traditional
right of copyright holders to determine with whom to deal and on what terms. Again,
despite protestations to the contrary, the FCC is proposing a compulsory
license. Regardless of whatever label the FCC eventually chooses to place on
its proposed mandate, as Mr. Kimmelman acknowledges, the agency’s diktat “would
simply ensure nondiscriminatory treatment of programmers and device and
platform vendors.”

You can play words games as long as you like, but the FCC’s mandate to “simply
ensure” nondiscrimination will be compulsory and it will be a license. Hence, a
compulsory license.

I want to add that I have known Gene Kimmelman for many, many years, and I
respect him and consider him a friend. I hope he feels likewise. For me, what’s
important are not the personalities, and I try hard never to question a person’s
motives for advocating a position. That’s certainly true here.

What’s important to me is getting policy right and acting in accordance with
the rule of law. There’s a reason that the Founders included the Intellectual
Property Clause in the Constitution and, uniquely, charged the federal
government with securing this particular form of property. The reason has much to
do with allowing creators of all sorts, whether they reside in Hollywood or
Podunk, to realize the fruits of their labors, and through the medium of
contracts freely negotiated, to realize the returns on their innovations and investments.

Absent a very compelling reason – which doesn’t exist in this case – a federal
agency, here the FCC, should not act in a way that has the effect of derogating
copyrights.

Friday, September 23, 2016

Earlier the month,
Netflix submitted
comments to the FCC with regards to the Commission’s Twelfth Broadband
Progress Notice of Inquiry. In the comments, Netflix asked the FCC to “take
into account the impact of data caps—and low data caps in particular—on a
consumer’s ability to watch Internet television using a mobile network.”

This is a clear example of rent-seeking. Netflix would benefit from an FCC
rulemaking that would limit the use of data caps by fixed and/or mobile providers,
because it would enable consumers to spend more time streaming Netflix.
However, consumers who do not use Netflix or infrequently use mobile data –
often low-income consumers – are better off buying a fixed amount of mobile data each
month as opposed to paying extra for unlimited data. Additionally, the FCC is
currently investigating zero-rated services, which are a complement to data
caps. It would be costly and contradictory for the Commission to investigate and possibly
regulate two services which work in conjunction with each other.

Thursday, September 22, 2016

Yesterday, a Gizmodo
article featured a new technology being used by the film industry to combat
online piracy. Developed by G-J van Rooyen, a professor at Stellenbosch
University, the technology uses bitcoin to track illegal content. Bitcoin uses
a blockchain, which is a public ledger of all bitcoin transactions.

Professor van Rooyan’s
company, Custos Media Technologies, “embeds some bitcoin into each copy of a
file that is sent to a licensed recipient, usually a reviewer. A part of the license
agreement is that the recipient is responsible for keeping the digital content
- and the bitcoin inside it - safe from digital pirates.” If a licensed recipient
breaks the agreement and distributes the content, Custos will be able to see
the transaction on Bitcoin’s blockchain. In other words, the system can be
thought of as a virtual bounty on each film that is pirated, revealing to the
film industry who is leaking the file. Hopefully, this technology will be
effective in combating online piracy and eventually can be used to track other illegal
content, such as music and television.

It is necessary to
address, and diminish, piracy and content theft through voluntary initiatives, such
as Custos Media Technologies, that help ensure that content creators, artists,
innovators, and marketers can earn a return on their creative works.

Thursday, September 15, 2016

Constitution Day officially is September 17, 2016. This year
marks 229 years since the signing of the Constitution on September 17, 1787, in
Philadelphia.

Not many people celebrate Constitution Day, but I’ve always
thought it worthy of commemoration. It’s an opportunity to take a moment – or
maybe more than a moment – to think about the Constitution’s meaning and its
relevance to today’s issues.

Over the years, I’ve written often about the ways the FCC’s
actions implicate constitutional strictures and constitutional values. Because
the FCC regulates media, communications, information services, and now the
Internet, it is not surprising that many of the agency’s actions implicate the
First Amendment’s free speech guarantee.

While many of the FCC’s actions present a target-rich
environment, today I want to focus on just one current proceeding that implicates
several different constitutional provisions – and that appears to run up
against constitutional constraints.

The proceeding I have in mind is the Commission’s proposal for
the government to mandate a new design, with new functions and features, for
video navigation devices and apps, and, now, in its latest iteration, even to
impose a compulsory license on video distributors that will dictate the terms
and conditions under which they must make available their video programs to all
who wish to take them.

First, whether or not the FCC acknowledges this explicitly
in so many words, the agency proposes to require video distributors like
Comcast, AT&T, Charter, Verizon, CenturyLink, Frontier, and the multitude
of others, to utilize a government-prescribed format, rather than one of their
own choosing, for presenting a navigation search menu. And the video
distributors will not be permitted to “discriminate” in the way they present
the search menu content and functions.

No less than a government diktat regarding the content of
video programing, a government diktat prescribing the permissible presentation,
arrangement, and content of a search menu violates the First Amendment’s free
speech guarantee as well. In light of the acknowledged competitiveness of the
video distribution market, including the competitiveness of the navigation
device and app market segment, the government can offer no compelling reason
for restricting the speech of the video distributors.

Second, the FCC’s proposal most likely runs afoul of the
Constitution’s Intellectual Property Clause because it almost certainly would
lead to violation of copyright owners’ rights. As
the Copyright Office explained in its August
3, 2016, letter to members of Congress: “The
rights protected by the Copyright Act are ‘exclusive’ to the copyright owner,
meaning that the copyright owner generally has full control as to whether or
how to exploit his or her work, including by entering into licensing
agreements.” Even while the FCC has continued to selectively leak revisions to
its proposal, nothing has changed the fact that copyright protection would be
jeopardized under a regime that requires programming to be shared across
multiple devices under an open standard license.

And now, the FCC appears –
again without explicitly acknowledging this in so many words – intent on
imposing a new compulsory license that would require copyrighted programming to
be made available to all entities on a non-discriminatory basis. Of course,
such a compulsory license is the very opposite of the exclusive control which Article 1, Section 8, Clause 8 of the
Constitution confers on copyright owners: "To
promote the progress of science and useful arts, by securing for limited times
to authors and inventors the exclusive
right to their respective writings and discoveries." For a full historical
and jurisprudential examination of the Founders’ intent regarding the
Intellectual Property Clause, please see my book, co-authored with Free State
Foundation Senior Fellow Seth Cooper, The
Constitutional Foundations of Intellectual Property.

It is true that the FCC
doesn’t enforce copyright violations and is not a repository of copyright
expertise. All the more reason for the Commission to consider carefully the
views of the government entity – the Copyright Office – possessing specific copyright
expertise and charged with advising Congress regarding copyright policy. The
FCC, like all government agencies, has a responsibility to uphold
constitutional values. If the FCC acts consistently with its responsibilities,
it will pull back its video navigation proposal.

Finally, the FCC keeps revising
its proposal “on the fly.” And now, in its latest iteration, the proposal includes
the compulsory license discussed above. This appears to be – although all we
have to go on are FCC Chairman Tom Wheeler’s blog and a minimal “fact sheet” –
a significant departure from the original proposal. As a matter of due process
– even aside from compliance with Administrative Procedure Act notice and
comment requirements – the agency should put its latest revised proposal out
for public comment in a “Further Notice of Proposed Rulemaking.”

Such a “Further Notice” would
enhance the prospects that the Commission would end up with a result that
constitutes sound policy and comports with the law – or at least a result that
comes closer to those obvious goals. Following this course seems to be required
as a matter of fundamental fairness, which is what the Constitution’s due
process clause is all about.

Again, September 17 is
Constitution Day. Don’t let it pass without giving some thought to what the
Founders bequeathed to all of us.

Truth be told, the FCC
commissioners ought to consider everyday Constitution Day as they conduct the
agency’s business. But, for now, perhaps Chairman Wheeler and his fellow
commissioners will use the occasion of this particular Constitution Day to stop
and reflect on how the agency’s problematic navigation device proposal comports
with important constitutional constraints and values.